Dear Clients and Friends,
The essence of Community Property law concepts in California – and in other community property jurisdictions such as Alaska, Nevada, Idaho, Oregon, Washington Arizona, Lousiana and Texas – is the recognition that both spouses make valuable contributions to a marriage.
This article provides some basic information regarding the distribution of a married couple’s assets and debts at the time of a Dissolution of Marriage Action. In addition, it provides information regarding the nature and handling of each parties separate property that is also a factor in a dissolution proceeding.
Community property is property that spouses acquire through the labor or skill of either during the marriage. It is important to understand that it also includes each spouse’s interest in the other’s pension and profit-sharing benefits (to the extent the fund was earned during the marriage), stock options, other retirement benefits and each party’s ownership interest in a business(s). These determinations are enforcable even if only one spouse worked outside of the home during the marriage and even if the property is in only one spouse’s name.
Debts incurred during the marriage are also deemed to be “owned” by each spouse equally. These include items such as mortgages, leases, credit card bills and car loans even if the debt is in only one spouses name. Student loans are an exception, and are considered separate property debts. Community property assets and debts are divided equally unless the parties agree to a different division. If a spouse agrees to pay a community debt and even if it becomes a court order – if that spouse fails to pay (or files for bankruptcy and discharges the debt) the other spouse in most instances will remain liable to the third-party creditor, who is not bound by the agreement or the court order relating to that debt.
Division of assets and debts can be complicated. Consulting with us before entering into any such agreement is advised. This is so even if you have already signed away your rights to certain property or assumed full liability for a debt. We may find that you are not bound by the agreement.
If spouses cannot agree on the division of their assets and debts a judge will make the decision for them. He or she may not divide everything in half and instead may give each, items of equal value. For example, one spouse may get the equity in the family residence and the other may retain 100% of their interest in their retirement plan.
Separate property: this includes property acquired before a marriage, including rents or profits received from these items; property received after the date of your separation from separate earnings, inheritances received either before or during the marriage and personal gifts are deemed to be separate property. Separate property is not divided in a dissolution of marriage action.
Problems with identifying separate property occur when it has been mixed with community property. In some cases the community acquires an interest in separate property over time.
A party whose separate property has been “mixed” may be entitled to receive it back. For example, if a spouse used separate property to pay for the down payment of a home or other property during marriage that spouse is entitled to a return of that investment. There are complex tracing requirements where property has been mixed.
Debts incurred before marriage or after the date of separation remain as separate property debts.
Each party in a dissolution proceeding is required to file proof that they delivered to their spouse a list of all of their community and separate property along with their income and expenses.
Determining the character of property can be complicated and mistakes can be costly. Do contact us to make sure that your property is correctly listed as community or separate. If desired, our representation can be limited to the financial issues in a divorce action.
Contact us for a free phone evaluation if we can be of help.
Best,
Ron